This is a lovely point for discussion. Let us get into the debate straightaway! “When I earn well, should I be frugal and postpone my enjoyment or enjoy my life and try to create income matching my expenses?” This can be debated for any length of time without any conclusion. Let us begin this journey!
“How do you create savings and investments to utilise the power of compounding without being frugal?” This is the question asked by proponents of frugality. While there is an element of truth in this logic, one cannot take it too far. Possibly one cannot be frugal lifelong; it may be ok in the initial stages of one’s career but many people rightly want to enjoy life after some time.
The proponents of enjoyment seem to think, “What is the point in living frugally and hoping to enjoy one day? Instead, you can enjoy right now.” There is also logic in this argument, but this school of thought has to be handled carefully. You can’t be indiscrete in your spending resulting in huge credit card debts or personal loans. It will be a shame on you, in case you are not able to contribute to causes like your sister’s wedding or brother’s education. One interesting argument put forth by this group is, “Unless we spend, how will the economy grow?” This is a very interesting point and our humble reply is,” Be the Finance Minister for you and your family members before becoming the Finance Minister for your Nation!!”
What is the recommendation of HappyMentor.com? Our views are very clear and are stated in the following steps:
- Work out your Financial Plan with your planner. Invest enough time on this, since your Financial Plan can be the basis document for many future decisions.
- ‘Pay yourself first’ every month i.e., save the amount as agreed with your Financial Planner and spend only the balance. Do not try the other way; it will not work.
- Do the ‘Need Analysis’ of your expenses i.e., expenses divided into three columns- needs, wants and luxuries. Involve your family members in this exercise so that they are kept happy. Never try to reduce on your needs. You may postpone some of the wants and luxuries. For example, one should not compromise on the place of living, food etc but may certainly reduce on entertainment such as movies.
- In consultation with your career mentor (it can be even your immediate boss), try to improve your income. Thereafter, allocate a percentage of such additional income for your unfulfilled wants in consultation with your financial mentor.
- Like the really Rich people, you may discipline yourself to pay for your luxuries only out of your passive income. It is really worthwhile, spending time with your Financial Mentor and focus on creating passive income. After creating passive income, you will not feel guilty in indulging in luxuries because you deserve those. We strongly recommend people to do this.
These are our thoughts and need not be universally applicable to all. You need to fine tune these ideas based on your own philosophy and in discussion with your financial mentor and family members. But one thing you will appreciate; Financial Planning is not about cutting down on expenses and living frugally. It is dynamic enough to suit your vision and move towards your grand Personal Finance.
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